Budget 2021: what can the self-employed expect?

Experts explore some of the measures the Chancellor may announce in the upcoming Budget

Rishi Sunak is set to announce numerous fiscal changes at the Budget on 27th October a bid to balance the books following the coronavirus pandemic. 

The government borrowed £299 billion in the first year of the pandemic – the highest figure since records began in 1946 – and tax rises could be on the agenda. 

Last month, the prime minister broke the Conservative party manifesto pledge by raising national insurance contributions (NICs) and dividend tax by 1.25 per cent. Industry experts slammed the move, saying it would hit businesses and the self-employed hard.

Boris Johnson said the reforms, which will be introduced in April 2022, will raise £36 billion for frontline services in the next three years.  

‘Unlikely’ there will be further increases to income tax in Budget

While the chancellor said he would “like to cut taxes” in his speech at the Tory party conference, it is unlikely he will be able to do this for some time.

Speaking of potential tax rises, Rachel McEleny, associate tax director at Deloitte, said: “Given the recent 1.25 per cent increases in national insurance rates and income tax rates on dividends, it seems unlikely that there will be further increases to income tax or national insurance.

“The national insurance primary threshold – the amount below which no national insurance is payable – is expected to rise by CPI in April 2022. However, the savings this would normally generate is likely to be dwarfed by the recently introduced 1.25 per cent increase in national insurance rates to increase funding for health and social care, which comes into effect on 6 April 2022.”

Rises to capital gains tax will give Treasury a short-term boost 

According to Deloitte and professional services firm, BDO, rises to capital gains tax (CGT) could be a possibility. BDO said that this may be aligned with income tax, which would make it a “more viable tax rise.” 

BDO also noted that any rises in CGT announced for April 2023 “could incentivise asset owners to sell up in 2022/23 and bring a nice cash boost for the Treasury in the short term.”

Regarding CGT, Deloitte’s McEleney explained: “Capital Gains Tax has been discussed as an area for change for some time, but this would be unlikely to raise significant amounts of tax. 

“It is typically paid by only around 275,000 taxpayers and raises less than £10 billion per annum. By comparison, the new Health and Social Care Levy, together with the increase in income tax rates on dividends, is expected to raise over £12 billion per annum.

“It’s likely when considering changes, the chancellor may keep in mind that two of the main CGT reliefs – Private Residence Relief and Business Asset Disposal Relief – have already been subject to significant restrictions in recent years. 

“The latter saw a cut in the lifetime limit in 2020 and the CGT annual exemption has been frozen at its current level until 2025/26. This means capital gains tax receipts may increase without any further intervention.”

Call for chancellor to review IR35 reform

It is clear that the chancellor’s focus will be on economic recovery following the pandemic, so according to the BDO, venture capital tax reliefs for investors (EIS, SEIS and others) may be enhanced to boost business investment, especially now that the UK is not restricted by EU rules.

Also something for the self-employed to be aware of is corporation tax rises. This is already set to jump from 19 per cent to 25 per cent in April 2023 and although there are no other tax rises being touted, HMRC is on the hunt to clamp down on non-compliance. 

Andy Chamberlain, director of policy at self-employed trade body IPSE, said: “The self-employed have been hit very hard by the pandemic, the gaps in support and the changes to IR35 this April. 

“We have called on the chancellor to not only cease further tax rises but to reconsider those that are already scheduled, to invest in training and skills for those who work for themselves and, in light of the HGV driver crisis, to undertake a comprehensive impact assessment of the IR35 changes.

“In short, the chancellor must seize the opportunity provided by this Budget to demonstrate the government’s support for those who have struck out on their own and shown the drive and resilience to survive in the most challenging of circumstances.”